Financial Planning and AI
I've just returned from a financial advisor conference whose central theme was artificial intelligence. This article briefly discusses how I now believe AI may reshape financial planning for retirement savers.
Squeezing Insight Out of Data
The first iteration of AI tools has already improved retirement planning. Forward-thinking advisors are using AI note-taking tools, for example. An AI note-taker allows advisors to focus and listen more closely, instead of frantically trying to jot down notes. A good AI tool will then summarize the meeting, complete with a list of follow-up items.
For DIY investors, chatbots like Claude or ChatGPT are useful tools for researching financial products, tax rules, and difficult questions around topics like when to claim Social Security. AI performs better on well-defined questions with clear frameworks, but can still provide misinformation when concepts are too nuanced or when inputs are incomplete.
But AI really has the potential to improve the retirement planning experience when it can combine and analyze separate data sources to gain valuable new insights, opportunities, and vulnerabilities.
Most financial advisors and planners use a handful of software tools that don’t communicate with each other. For example, a typical practice might include a financial planning tool, a customer relationship management (CRM) system, a reporting and billing system, a tax planning tool, a trading platform, and an application for one or more custodians — all operating as separate systems.
Image created with ChatGPT
One promise of AI is that it can provide a data overlay that pulls all these data sources together into one dashboard, allowing a trained financial planner to quickly gather information across many platforms in one place.
Let’s say a client wants her advisor to draw $50,000 from her accounts to pay for a new car. The current process for an advisor might be:
Review accounts individually to see how much has been withdrawn year to date,
Look at last year’s tax return to see typical income,
Review CRM notes to see whether there are other expected changes in income based on recent conversations.
If the advisor is lucky, he hasn’t forgotten any other tidbits of financial information that may have come up in one of their many conversations.
New AI tools should allow the advisor to access all these data sources with a single query, “Susan wants to withdraw $50k with minimal tax impact. Review her accounts, tax return, and notes and tell me which accounts should be pulled from for the best tax efficiency.”
A good AI tool might recommend pulling $20k from an IRA to max out the 12 percent income tax bracket and the remainder from a taxable brokerage account. It might look through the notes to see whether Susan expects a major change in her income.
It is still imperative that the advisor understand the taxability of each account and the interplay of income from accounts, capital gains, and earned income. But AI can help get the job done more efficiently, with a lower likelihood of missing something important. It brings the advice to a deeper level.
This “data overlay” does not seem to be commonplace among financial advisors yet, but it appears to be just around the corner.
AI and the DIY Retirement Saver
AI may carry even greater significance for retirement savers who manage their own finances. Access to high-quality financial guidance has historically been uneven. Those with substantial assets have had access to sophisticated planning, while others have had to navigate complex decisions largely on their own. For those who are willing to learn, AI has the potential to change that.
I told Claude AI to pretend I was a healthy, single, 62-year-old woman with some savings who wants to retire at 65 and is concerned about longevity and inflation. I then asked whether I should delay Social Security benefits until age 70.
Claude’s response was thoughtful and balanced, something similar to what I as a financial planner would tell a client or what you might read at the Center for Retirement Research. It suggested that delaying benefits might make sense given my fear of longevity and inflation. But it also offered this tradeoff: “Between ages 65 and 70, you'll need to fund five years of retirement without Social Security. That means drawing down your savings more heavily in those early years. Whether that's sustainable depends on how much you've saved. A financial planner can help you model whether your portfolio can bridge that gap comfortably.”
This is a huge leap forward from a Google search on the topic, and the answer would almost certainly improve if I provided more data, perhaps even running a Monte Carlo simulation if I offered the data inputs.
DIY retirement savers will have more resources than ever to manage their financial lives, but it’s still going to require a lot of work. Rather than a threat to the advisory profession, AI-enhanced financial advice for DIYers looks like a continuation of a long trend toward greater financial access, and is a development worth watching closely from a retirement security perspective.
The Ability to Do More
Will AI replace human advisors? My experience in talking with hundreds of potential clients over the years is that some people will always hire an advisor, and some will always want to do it themselves. For either constituency, AI looks poised to offer a significant upgrade to the financial planning experience.
In the past decade, we’ve moved from paper ledgers to spreadsheets to sophisticated planning software. Financial planning software has created massive efficiencies for those who use it. AI appears to be the next chapter in that evolution. Early signs suggest it will expand what's possible.
That's a reason for optimism on behalf of retirement savers. Those who work with advisors may find those relationships becoming richer and more proactive. Those who DIY may find better tools than ever to help them navigate the road ahead. Either way, I’m hopeful that AI can help people arrive at retirement with more financial security and confidence.